Large Utility NiSource to Sell Fixed-Rate Reset Preferred

Electrical and gas distribution utility NiSource (NYSE:NI) is going to sell a fixed-rate reset perpetual preferred.

We do not recall a large utility selling this particular type of preferred in the past and we don’t find a similar issue outstanding right now.

The 1st call date is in 2024 after which the reset formulation–based on the U.S. 5 year treasury plus a margin kicks in.  It will be most interesting to see what the ‘spread’ will be in the reset period.

Preliminary information can be found here.

30 thoughts on “Large Utility NiSource to Sell Fixed-Rate Reset Preferred”

  1. HGH seems appealing enough for me to pick up some here @ 27.73 It is non QDI, but pays 7.1% to 2022 and floats afterwards at LIBOR plus 5.6% which is roughly 8.2% at todays rates. Borderline investment grade baby bond with coupon of 7.875

    1. George, some people have been playing that issue as a short term baby bond assuming a call at first redemption date. The good thing is if it doesnt get redeemed one has a big kicker to go with Libor. I havent done a lot lately. Just try to burrow into more ute preferreds when I get a chance. Bought some CNTHP today. Held this quite often but sold out over $57. Waited for a plus 6% reentry and found it today. Have 8 different utility preferreds now.

      1. Grid, as usual, we seem to be thinking alike much of the time. I also bought more CNTHP today – 200 shares @ $54.26.

        Sold 200 shares of CNLPL @ $56 to pay for the buy; cost basis was $55.75, so a small cap gain plus 1 dividend ahead on that trade.

        1. You got me by 24 cents you thrifty shopper…You should have stayed on vacation a little longer Inspbudget and maybe I could have got those!

    2. To me, the risk is it is called in 3.5 years before it starts to float. You would lose, $2.70 cents, 14 dividends payments over 3.5 years would be $6.89. Total gain if called is $4.19 cents. Over 3.5 years that’s about $1.2 per year or roughly 4.8% per year. Of course, if not called right away, it’s a strong investment.

      1. Steve, I havent done the math recently and just going by your math. But, remember this return should be compared to a 3.5 year bond issue, not perpetual. So for some that return is good for a short duration. Some are actually wanting the redemption to be served at that point and factor it in. There arent many tradeable issues that would generate that yield in terms of that safety for that duration. Its a possible good way to spread out duration risk amongst issues. I watch it, but still am not a player.

        1. I agree, I watch it also. I consider it to be a safe choice with a relatively short duration. I also (if I do buy fixed-float) like the idea of the float causing a call. Would like to see 5.5% or higher but that’s what I’m am looking for to achieve my goals. 4.8% may do the trick for other

          1. Kaptain Lou (who is an accountant) got me onto some 2022 maturing Mack-Cali senior unsecured bonds. I got in a little early but price has dropped to almost 6% YTM. BB+ rated for this veteran reit. May be something to consider.
            I dont play in reits much because of my tax issues and lack of reit accounting skills. But he is a down the middle investor and is comfortable owning them.

              1. Tim, yes I believe it is. I only bought 10k, because I am a blue collar guy.
                Here is cusip if you are interested… 55448QAQ9

                  1. Retired, you may be right…FINRA has it as last trade $95.62 today and YTM of 5.942%. I havent done math just going by what FINRA says it is. I thought I bought in lower 5% range, but it has been awhile and I dont remember exactly what price I paid but it was higher. I havent dont the math in recently, so FINRA may have the math wrong.

  2. I had Fidelity informs me in writing via email that this will NOT be subject to Canada withholding taxes. Will they honor it? I hope so, but TBD

  3. I recently brought the offering AQNA (in an IRA to avoid Canadian withholding taxes). It owns a US subsidiary Liberty Utilities Co. One notch below investment grade. It was 6.875% and it floats after 5 years at LIBOR plus 3.67%.

    ThisrResets at 5 year TBILL plus 1%. Bad

    Looks like a pass unless they want to do 7% teaser rate or better for 1st 5 years

    1. SteveA–we shall see what it prices at tonight (probably). I stayed away from AQNA because regardless of how it should be etrade withholds for taxes in my account and I don’t want the hassle of filing to get it back–I’m lazy I guess.

      1. This one looks more fimiliar to the way some Canadian utilites issue preferreds. The adjustable appears to be 5yr treasury plus 1%.. Gonna try to sneak a perpetual with a low payer into the exchange..I wont play if that is the game…California Edison had a nice one that was based off 30 year bond plus kicker…It got redeemed a few years ago.
        Thanks for posting Tim. I will look and see if terms are better when its sent to market.

        1. Grid–I think they lay awake nights trying to figure out how to screw the retail investor. Their job is to finance at a ridiculous rate while out job is to call BS on them and simply not buy.

          1. Tim, what do you bet the first 5 year payout is in 5.75 range…That gets buyers out, then the yield drops hard in 5 years. Dont you love the issues that will base your payment off low end of yield curve to exploit leaving it outstanding on the long end. IEP is dropping near its par with a 3.22% plus Libor. This is the absolute minimum benchmark for me. Its a 6% issue and floats in 5 more years. I need it to drop more to cover that low kicker to buy though.

            1. At this point in time I think we are nearing peak interest rates–in 5-6 years the 5 year could be 1%—this will end up being a true ‘perpetual’.

              1. Tim, is this a change in your thoughts on int rates? we are nearing peak? even w the deficits and bal sheet run offs and 1-3 rate hikes thru 2019? would this be because you feel economy will slow?

                I have a slew of income issues and CEF’s on high watch alert list should we get a turn.. thanxx Bea

                1. Hi Bea—I have noted the softness in the housing sector many times in the last couple of months and that was a tip to me that we may have growth issues on the horizon–but consumer confidence doesn’t seem to confirm those potential issues–so I am a bit torn.

                  I think from a Fed Funds rate perspective December is baked in–it will happen. After this I wouldn’t be a bit surprised to see a hike out in June–but still very much in the air. I would be really surprised if we get a rate hike prior to that and June could be the only hike on the year.

                  I think the runoff continues — for now. The deficits in the years ahead are problematic—but if the balance sheet is reduced when times are good the Fed would have some ability to buy debt again (QE) if foreigners step back more.

                  The way I am playing it is I will buy more perpetuals—slowly. I own some quality perpetuals and over the last 3-4 months I have lost 25 or 50 cents on them, but they are ‘sleep well at night’ holdings. These are the Allianz preferreds (1 at 5.5 and 1 at 5.625) and are strongly investment grade. I think I will look for reasonable quality perpetuals starting late December–get the Fed rate hike behind us.

                  Of course we have all kinds of potential ‘black swans’ out there–I could list them, but then they wouldn’t be black swans I guess.

              2. Well somebody at SI quoted a 6.5% yield going to market.. Temp ticker appears to be NISOP. Unless float feature is better which I cannot confirm, I am not a player. Need more info still

          2. Tim – you are so right. A large, investment grade company goes to the retail market for only two reasons: 1) occasionally, it’s to keep a retail debt presence, just in case it’s needed, and 2) most of the time, because the issuer wants better rates and/or terms than what’s available from the institutional market. Retail gets treated like 2nd class, it’s just the truth.

            That’s one reason, the main one actually, that I also hold institutional debt through CEFs. A non-institional investor can’t get his hands on the good stuff otherwise.

            Shall see when this comes out. My guess, it will have a built-in rate drop after first call, i.e. it’s a low rate perp in disguise.

            1. I hear this issue is priced at 6.5%, not confirmed yet…Which is higher than the series A preferred which was privately placed this summer…But filling in the blanks the other terms look to be set up to mirror what went to market in the private placement…From this summer….
              The initial dividend rate for the Series A Preferred Stock from and including the date of original issue to, but not including, June 15, 2023 is 5.650% per annum of the $1,000 liquidation preference per share (equal to $56.50 per share per annum). On and after June 15, 2023, dividends on the Series A Preferred Stock will accumulate for each Reset Period (as defined in the Certificate of Designations) at a percentage of the $1,000 liquidation preference equal to the Five-year U.S. Treasury Rate (as defined in the Certificate of Designations) plus (i) in respect of each Reset Period commencing on or after June 15, 2023 but before June 15, 2043, a spread of 2.843% (the “Initial Margin”), and (ii) in respect of each Reset Period commencing on or after June 15, 2043, the Initial Margin plus 1.000%.

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